Reagan's Social Security Assessment Not Entirely Accurate

Wicker, Thomas, THE JOURNAL RECORD

""Social Security is running a surplus. Social Security is not
part of the deficit problem. It is totally financed by a payroll
tax, totally dedicated to that one program. If Social Security
spending were reduced, you could not take that money saved and use it
to fund some other program.'' - President Reagan, Jan. 18, 1985.

NEW YORK - Despite this statement, the Senate has voted, and
Reagan has accepted, a one-year abstention from cost-of-living
increases for Social Security recipients.

This ""freeze,'' they claim, will reduce the federal budget
deficit by $6 billion in fiscal 1986 and about $22 billion over three
years.

So what's going on here?

The answer is that Reagan was both right and wrong in his news
conference statement:

- Right that Social Security taxes are earmarked for Social
Security benefits and cannot be spent for anything else.

- But wrong that Social Security is not part of the ""deficit
problem'' - the particular ""deficit problem,'' that is, that the
Senate was trying to solve.

The figure of $213 billion, for instance (said to be the impending
1986 deficit if nothing is done to reduce it) is for the unified
federal budget.

It's not well understood that the unified budget, in use since the
Johnson administration, comprises all earmarked as well as general
tax revenues, plus all expenditures, whether covered by earmarked
revenues or not.

That includes both Social Security income and outgo.

The former is, indeed, larger than the latter, producing a
surplus. However, Social Security benefit payments still add to the
spending total in the catch-all unified budget.

If those benefits are reduced by $6 billion in fiscal 1986, that
spending total is reduced. Hence, the unified budget deficit also is
reduced by $6 billion (assuming that other expenditures have not been
increased).

It's true that the $6 billion cannot be spent for any other
purpose. Instead, the Social Security trust fund surplus will be
increased by that much; but the surplus is lent to the Treasury for
general purposes, reducing the Treasury's need to borrow in the
credit markets.

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